by C. Jean Stewart
Last month Maryland’s highest appellate court released a narrowly-divided (4-to-3) opinion in a tax apportionment case involving the estate of celebrity novelist Tom Clancy (The Hunt For Red October, Patriot Games, Clear and Present Danger, and other popular espionage novels), who died on October 1, 2013. This case once again confirms that (1) blended families, combined with (2) tax apportionment disputes and (3) ambiguity and inconsistency in estate planning documents, inevitably fuel expensive and protracted probate litigation.
In his will, Clancy gave his tangible personal property and two of his residences outright to his second wife, who survived him, and directed his Personal Representative to divide his residuary estate into three equal parts. One part, designated as the “Marital Share,” was to be (a) comprised entirely of assets qualifying for the federal estate tax marital deduction, (b) held solely for the benefit of his widow, and (c) exonerated from all tax liabilities to qualify entirely for the marital deduction. Read more
by Matthew Skotak and Rebecca Klock Schroer
Common law provides that a killer cannot profit from his or her own wrong. This policy underlies what is known as the “Slayer Statute.” The Colorado Probate Code includes Colo. Rev. Stat. § 15-11-803 to address the scenario where a person kills another and stands to inherit the victim’s assets.
Under the Slayer Statute, there are two ways to show that a person cannot inherit. First, if the person is convicted of a felonious killing in a criminal proceeding, after all right to appeal has been exhausted, such conviction is conclusive under the Slayer Statute. Accordingly, the killer’s right to inherit from the victim is extinguished and the killer is generally treated as though he or she predeceased the victim.
Second, a civil action may be commenced under which the accusing party may try to prove, by the preponderance of the evidence, the elements of a felonious killing. If the elements are proven, the killer’s right to inherit from the victim is extinguished. The ability to move forward with a civil action may be particularly useful if the criminal proceeding is subject to multiple appeals and is pending for a number of years.
The Slayer Statute generally addresses the killer’s right to inherit under revocable instruments, nonprobate assets, e.g., life insurance, and statutory rights. It does not address every possible scenario and therefore, has a “catch-all” provision. This provision provides that “A wrongful acquisition of property or interest by a killer not covered by this section shall be treated in accordance with the principle that a killer cannot profit from his or her wrong.” Colo. Rev. Stat. § 15-11-803(6). Read more
by Margot S. Edwards and Anne A. Zeckser
Due to recently proposed regulations to Section 2704 by the U.S. Treasury Department, high net-worth taxpayers and their advisors need to act now to evaluate the best course forward. The proposed regulations threaten to significantly curtail the application of discounts to intra-family transfers of entity interests, which impact key gift and estate tax planning techniques used for high net-worth individuals. For wealthy families and their advisors, these proposed regulations call to mind the flurry of wealth transfer planning activity that took place in late 2012. Advisors are anticipating a very busy fourth quarter working with clients to address the impact of the proposed regulations.
Who Should Act Now
In consultation with their advisors, the following taxpayers should look carefully at their assets to determine whether there are any opportunities to shift substantial value out of the taxpayer’s taxable estate before discounts effectively disappear:
- Taxpayers whose estates are subject to the imposition of estate tax
- Taxpayers who have historically made annual gifts of discounted business interests to family members or trusts
- Taxpayers who have been considering establishing a long term trust for family members to hold business interests
- Taxpayers who have an existing trust in place for family members
- Taxpayers who have a need for business succession planning
Next Steps – What to Do and When
The proposed regulations could become final and effective as early as late December 2016 (although a later effective date is more likely) and a hearing on these regulations is scheduled for December 1st. As a result, all family business owners and wealthy taxpayers should take this opportunity to meet with their team of advisors to review their wealth transfer plans and, if additional transfers are warranted, initiate that process as soon as possible.
The affected taxpayers should consider gifts or sales of discounted business interests to family members or trusts by the end of this year. However, it is important to note that there will likely be a 3-year-look-back on transfers. These taxpayers should also consider the transfer of discounted entity interests to a trust in exchange for a note or an annuity interest to preserve future planning opportunities. While it is unclear whether the IRS will require some sort of consistency of valuation for payment of promissory notes and annuity interests, there is the potential that payments could be made with undiscounted interests later, further enhancing the tax savings. Read more
by Jody H. Hall, Paralegal
As of Monday, August 7, 2016, practitioners can now search for probate and trust cases in the Integrated Colorado Courts E-Filing System (“ICCES”). In the past, Colorado probate estate and trust cases were only available for viewing by attorneys of record. If someone needed to determine if a case had been opened, he or she would need to contact the court clerk’s office and often pay a search fee. In the most recent release of ICCES, registered users can search to determine if a probate estate or trust matter has been opened; however, the documents themselves will only be available for online viewing to parties of record and to the Court.
Protective proceedings will remain a protected filing class and only attorneys of record will have access to those cases. An entry of appearance will need to be filed, and accepted by the court, in these matters to gain access.
All Public documents submitted in trust and estate cases prior to August 6, 2016, will be set to a document security type of Protected and not available for viewing unless counsel is of record in the case.
Click here to view the Probate Enhancements section of the Colorado Judicial Branch E-Filing News Newsletter, August 2016.
by Kimberly Rutherford
After Carol Warnick’s blog of December 14, 2015 briefly discussed the new procedure enacted by the Internal Revenue Service (the “IRS”) regarding the issuance of Estate Tax Closing Letters (“closing letter”) only if specifically requested by the taxpayer for all estate tax returns filed after June 1, 2015, we decided to watch closely to see what happened with our requests for closing letters.
The IRS’s website of “Frequently Asked Questions on Estate Taxes” had been previously updated on June 16, 2015, and addressed the issue of when a closing letter could be expected. The IRS asked that taxpayers wait at least four months after filing the Estate Tax Return to make a request for the closing letter. The website also included a chart detailing when the IRS will and won’t issue a closing letter.
by Andy Lemieux, Elizabeth Meck, and Jessica Schmidt
As any practitioner who has dealt with the distribution of mineral interests from a decedent’s estate knows, dealing with these interests can be tricky and the process is not always clear. This is particularly true when old interests have not been distributed properly at the time of death. Thankfully, recent decisions in Colorado, as well as updates to certain provisions of the Colorado Probate Code, provide some clarity to this process. A recent decision in Utah also provides clarity about who is entitled to the proceeds of production from oil and gas operations when life tenants and remaindermen are involved.
Specifically, Colorado just updated its statutes governing the process for the determination of heirship, found in the Colorado Probate Code at Colo. Rev. Stat. § 15-12-1301, et. seq. A sub-committee of the Trust and Estate section of the Colorado Bar Association carefully reviewed the existing statutes, coordinated efforts with other sections of the bar, and with the approval of the Trust and Estate section, presented revisions to these statute sections as part of the omnibus bill, SB 16-133, in February 2016. The committee’s goal was to address the issues Colorado practitioners have experienced in trying to distribute these interests from dormant or previously-unopened probate estates and to make the process to distribute previously undistributed property, including mineral interests, more clear. SB 16-133 was signed by Governor Hickenlooper on May 4, 2016, thereby adopting the revisions recommended by the committee. A copy of the Bill as enacted can be found here.
by Morgan Wiener
You may have previously read on this blog about digital assets, the impact they have on the administration of trusts and estates, the need for fiduciaries to access digital assets, and the privacy concerns that come along with such access. In order to address these issues, Colorado has recently enacted the Revised Uniform Fiduciary Access to Digital Assets Act (“RUFADAA”). This new act will be effective as of August 10, 2016 and can be found at C.R.S. § 15-1-1501 et seq.
RUFADAA addresses these issues by setting forth the circumstances under which a fiduciary is allowed (or may gain) access to digital assets, while also taking into account the privacy interests of the testator, settlor, protected person, etc. (for ease of reference, I will generally refer to these people as the “Person”). RUFADAA also takes into account the interests of the custodians of the digital assets; a custodian is defined as the person or entity that carries, maintains, processes, receives, or stores a digital asset of a user and includes entities such as banks, Google, Yahoo, and Facebook. RUFADAA places paramount importance on the intent of the Person and limits a fiduciary’s automatic access to the content of the Person’s digital communications absent their consent or a court order.
by Rebecca Klock Schroer
The Colorado Uniform Trust Decanting Act (“Act”) was recently signed by the Governor and it will become effective August 10, 2016. The legislation is large, complex and important for both estate planners and probate litigators.
Decanting allows a trustee to distribute the assets of one trust (“first trust”) to a second trust (“second trust”) under specific circumstances. The Act applies to an irrevocable trust, other than an irrevocable trust held solely for a charitable purpose. Colo. Rev. Stat. § 15-16-903. Decanting is used, among other things, to correct drafting errors, change the situs/governing law of a trust, alter trustee provisions (e.g. trustee succession, create a directed trustee arrangement, reallocate trustee powers), alter powers of appointment, add special needs provisions, and comply with changing tax laws.
by Kelly Dickson Cooper
For our litigation clients, a fiduciary’s failure to consider the tax impact of their actions can be the genus for litigation and anticipated tax savings can be the engine that drives a settlement. For our fiduciary clients, it is important for them to ensure that transfer taxes are minimized for the benefit of their beneficiaries. For our planning clients, tax planning is a key component in determining the best structure for their wealth transfer planning. Given the importance of transfer taxes in our practice, we wanted to highlight a few items from the IRS 2015 Data Book relating to estate and gift tax returns:
Number of Tax Returns filed during 2015
- 36,343 estate tax returns (545 from Colorado)
- 237,706 gift tax returns (4,492 from Colorado)
- Estate tax returns – $17,066,589 collected
- Gift tax returns – $2,052,428 collected
Percentage of 2014 Tax Returns Audited in 2015
- 7.8% of all estate tax returns
- Gross estate less than $5 million – 2.1% audit rate
- Gross estate greater than $5 million but less than $10 million – 16.2% audit rate
- Gross estate greater than $10 million – 31.6% audit rate
- 0.9% of all gift tax returns
Results of Audits
- 22% of estate tax returns examined had no change
- 34% of gift tax returns examined had no change
- 70 estate tax returns and 135 gift tax returns had unagreed recommended additional tax
- 543 estate tax returns and 43 gift tax returns resulted in tax refunds
by C. Jean Stewart
Twice a year probate judges from around the country gather to address current issues in probate, protective proceedings and mental health as part of the work of the National College of Probate Judges (“NCPJ”). Last week we met at the Grand Hotel Resort in Point Clear, Alabama.
Julia Meister, a prominent attorney from Cincinnati, Ohio, discussed the increasing frequency with which probate courts are handling competency disputes in the last chapter of life as opposed to traditional will contests occurring after death. She mentioned the recent, much-publicized probate court decision involving Sumner Redstone. After viewing the video-taped deposition of Mr. Redstone, the probate judge found the media mogul was sufficiently competent to identify who he wanted to be his health care provider.